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U.S.-European Economic Relations And World Trade
Robert D. Blackwill and Kristin Archick
"The Asia Crisis: Economic and Political Implications"
New York
April 15, 1998
Introduction
Much debate exists over the likely effects of U.S.-European economic relations on the future viability of an invigorated transatlantic partnership. Some of those who perceive largely positive dynamics between the two sides of the Atlantic in trade and investment assert that the U.S.-European commercial relationship will serve importantly to undergird the Western Alliance in the period ahead, contributing to further deepening of political and security cooperation. Others, however, argue that in light of the end of the Soviet threat and the quickening pace of globalization, transatlantic competition and diverging economic priorities are likely to threaten increasingly the cohesion and unity of the Atlantic Alliance. This paper first explores indicators that signal the continuation of a robust trade and investment relationship across the Atlantic, then discusses possible challenges to maintaining close commercial ties between the United States and the European Union (EU), continues with a survey of policy prescriptions offered by various experts to manage the economic aspects of the partnership, and finally returns to the question of the effects on broad U.S.-European cooperation of transatlantic economic interaction.
Encouraging Trends In U.S.-European Economic Relations And Potential Transatlantic Benefits
Many experts see several encouraging trends in current U.S.-European economic relations that they believe are indicative of continued transatlantic cooperation in the global marketplace in the period ahead. These enthusiasts stress that such close collaboration in the economic sphere will serve to bind the Atlantic Community even more closely together. In support of these contentions, they point to the following three factors:
The Volume of U.S.-European Trade and Investment
The United States and the European Union have the largest economic relationship in the world. 1 Trade and investment between America and the 15 members of the EU exceeds $1 trillion. 2 In 1996, two-way U.S.-EU trade in goods and services was approximately $400 billion. 3 By way of comparison, two-way U.S. trade in goods and services in 1996 was $327 billion with Canada, $182.8 billion with Japan, and $63.5 billion with China. 4 In 1996, U.S. merchandise exports to the EU totaled $127.5 billion, while merchandise imports were $147.5 billion; exports of U.S. services to the European Union were $69.8 billion and U.S. imports of services were $47.9 billion. 5
The degree of investment between the United States and the European Union is even more impressive. In 1996, EU companies accounted for approximately 59 percent of foreign direct investment (FDI) in the United States, while about 44 percent of American FDI was in the countries of the European Union.6 In comparison, Asian firms accounted for only 21 percent of FDI in the United States, and only 18 percent of U.S. FDI was invested in Asia. 7 European companies are the number one foreign investor in 42 of the 50 American states, and the number two investor in the other eight. 8 In 1996, U.S. direct investment in the Union was $348.4 billion; EU direct investment in the United States was $372.2 billion. 9 The European Union is the largest market for U.S. affiliate production and sales, accounting for over half of the global production of U.S. firms outside the United States. 10 American affiliates in Europe sell over $800 billion, while European affiliates in the United States net close to $700 billion in sales. 11 Roughly three million Europeans are employed by U.S.-owned companies in Europe, and three million Americans work in the United States for European-owned firms. 12 According to the U.S. Commerce Department, one out of every 12 factory workers in the United States is employed by a European-owned corporation. 13
These trade and investment figures led Ambassador Hugo Paemen, head of the delegation of the European Commission to the United States, to characterize the United States and the European Union as "the most stable and the most balanced" trade and investment partners in the world. 14 Many thus argue that because the American and European economies are so interdependent, the United States and Western Europe will retain sizable and important economic interests in each other. 15 Deputy U.S. Trade Representative Jeffrey Lang notes that "the sheer extent of transatlantic economic interactions makes it imperative that, no matter what other opportunities we perceive in the world, we must continue to bear in mind that truly vital U.S. economic interests are at stake in our relations with Europe." 16
Question 1. What are the long-term positive and negative trends in transatlantic trade and investment?
Multiplying Bilateral Trade and Investment Agreements
In the last few years, the United States and the European Union have pursued a number of bilateral measures aimed at reducing market barriers and deepening trade and investment. Building upon the 1990 Transatlantic Declaration, which established a new framework for regular and intensive consultation between the United States and the European Community, the United States and the EU launched the New Transatlantic Agenda (NTA) in December 1995 at the U.S.-EU Summit in Madrid. The agenda is a comprehensive initiative that seeks to expand transatlantic cooperation on a wide range of issues including promoting European and global security, addressing transnational challenges such as combating terrorism and protecting the environment, strengthening the multilateral trading system, and building a more open trade and investment environment across the Atlantic. 17 It proposes the founding of a New Transatlantic Marketplace to expand trade and investment opportunities and create jobs on both sides of the Atlantic by reducing or removing tariff and nontariff barriers that hinder the flow of goods, services, and capital between the United States and Europe. 18 In addition to committing the United States and the EU to undertake a joint study on how to facilitate trade in goods and services and further reduce or eliminate trade and investment barriers in the long term, the NTA set out to conclude a series of bilateral agreements on standards and certification requirements and to promote U.S.-European cooperation within the World Trade Organization (WTO).
By many accounts, the unprecedented degree of contact and understanding among U.S. and European government officials provided for by the NTA, combined with the influence and effectiveness of the Transatlantic Business Dialogue (TABD), have resulted in impressive strides so far in achieving the economic goals set forth in the NTA. The TABD, initially proposed by late U.S. Secretary of Commerce Ron Brown in December 1994, is intended as a dialogue among U.S. and European CEOs and trade officials, in which a business-driven vision of transatlantic commerce can be developed and specific recommendations for removing barriers devised. 19 The first meeting of the TABD, held in Seville, Spain, in November 1995, resulted in approximately 70 specific policy prescriptions. 20 Topping this list was the need to harmonize differing standards, regulations, and testing and certification requirements, which the TABD cited as the main impediments to transatlantic commerce (tariffs were actually viewed as lesser obstacles). 21 The TABD's recommendation on this matter was included as one of the economic action items in the NTA. 22
Numerous observers suggest that the spotlight shone on this issue by the TABD provided a major impetus to begin transatlantic negotiations on a package of six Mutual Recognition Agreements (MRAs), signed in June 1997. In these agreements, the United States and the European Union each accepted the testing and certification procedures of the other, thereby avoiding repetitive approval processes. The six agreements pertain to telecommunications, medical devices, electromagnetic compatibility, electrical safety, recreational craft, and pharmaceutical good manufacturing practices, and cover approximately $50 billion in two-way trade. 23 Some estimate that this package, once implemented, will save U.S. industries $1 billion annually, equivalent to a tariff cut of several percentage points. 24
Many believe these Mutual Recognition Agreements could not have been established without the groundwork laid by the Transatlantic Business Dialogue. 25 Franklin Vargo, acting U.S. assistant secretary of commerce for market access and compliance, commented, "It is difficult to overstate the effect the TABD has had on trade liberalization. No other forum has risen so rapidly to become as effective as the TABD. It has become the single most important channel through which business can influence the bilateral trade and commercial agenda of the U.S. Government and the European Commission." 26 Proponents note that the NTA and the TABD have also been instrumental in formulating a Veterinary Equivalence Agreement, drafted in April 1997, that establishes regulatory cooperation between the United States and the EU in the health inspection systems of animal and animal-derived products. 27 In addition, government officials contend that the support of the TABD was crucial in completing the Customs Cooperation and Mutual Administrative Assistance Agreement, signed this past May at the U.S.-EU summit in The Hague, and an Anti-Bribery Agreement, concluded in November 1997 in negotiations at the Organization for Economic Cooperation and Development (OECD). 28
Looking to the future, it appears to several analysts that the United States and the European Union are committed to pursuing even further bilateral trade and investment liberalization. These experts point to the ambitious agenda outlined by U.S. and European trade officials and business leaders. 29 The most recent TABD Conference in Rome on November 6-7, 1997, devoted considerable attention to further limiting excessive regulations and harmonizing standards on both sides of the Atlantic. 30 The TABD recommended reforming regulations in a number of sectors, including aerospace, biotechnology, chemicals, and automotives, not covered by the MRA. 31 The Rome Conference also concentrated on establishing strong intellectual property protection mechanisms, promoting electronic commerce, and fostering trade in services.
Question 2. What are the most important sectors in the bilateral trade relationship that have yet to be adequately addressed? Is continued U.S.-EU progress in these areas likely?
Increasing U.S.-European Cooperation in Liberalizing Global Markets
For nearly half a century, the United States and Europe have striven together to create an increasingly open environment for trade and investment throughout the world, based upon the belief that free trade is necessary not only for global prosperity but also to prevent a replay of the economic and consequent political disasters of the 1930s. 32 Many pundits note that this commitment to international trade and investment free of market barriers is one of the founding blocks of the Atlantic system.33 In order to continue in the pursuit of this goal, transatlantic cooperation is imperative. As Acting Assistant Secretary of Commerce Vargo stated, "Experience has shown that, large as we are, we cannot open the global marketplace on our own. We must have partners in that endeavor." 34 And as in the security arena, Atlanticists argue that the United States and Europe are the most desirable primary partners for one another because of their shared values. Gregory Treverton remarked, "When America and Europe advocate free trade, they are less likely to talk past each other than America and Asia are. . . . [T]here will for a long time be a quality of shared understanding across the Atlantic that is different from that across the Pacific." 35
American officials have long stressed that the countries of the European Union have been the most consistent and close supporters of the United States in every iteration of multilateral trade talks, beginning with the first round of the General Agreement on Tariffs and Trade (GATT) in 1947 in Geneva. 36 This collaboration culminated in January 1995 with the launching of the WTO as the successor to the GATT. 37 Vargo commented, "No trade round or other major multilateral initiative has been achieved without the joint leadership of the United States and Europe." 38 Therefore, he asserts, in order to promote the creation of a global marketplace, the United States and the European Union must often first reach agreement between themselves on disputed trade and investment issues. For instance, it was possible to conclude the Uruguay Round of the GATT and proceed to the founding of the WTO only after Washington and Brussels resolved their differences on agricultural issues. 39
Most recently, U.S.-EU leadership was essential in achieving the Information Technology Agreement (ITA) and the Basic Telecommunications Agreement in the WTO. The NTA and the TABD played vital roles in bringing these two multilateral agreements to fruition. The ITA, originally proposed by the TABD in its first set of recommendations issued in Seville in 1995, was agreed to at the WTO Ministerial meeting in Singapore in December 1996 and finalized in March 1997. 40 It will eliminate by the year 2000 all tariffs in 43 participating countries on over 300 information technology goods such as computers, semiconductors, and electronic circuit equipment, thus liberalizing over $500 billion of trade in information-related products.41 In its report from the Seville Conference, the TABD also urged the United States and the European Union to accelerate the ongoing WTO negotiations on telecommunications. 42 Signed in February 1997, the Basic Telecommunications Agreement will open the telecommunications services markets of 69 countries to foreign investment. Covering $500 billion in global commerce and representing more than 95 percent of world telecom revenue, this agreement will result in increased market access and investment opportunities for telecommunications firms throughout the world, greater availability of telephones and communications services to local populations, and lower costs to consumers of telecommunication products and services. 43
Many commentators have attributed the conclusion of the ITA and the Basic Telecommunications Agreement to the "joining together of the U.S. and Europe, which pushed the rest of the global community forward." 44 Under Secretary of State for Economic, Business, and Agricultural Affairs Stuart Eizenstat has opined that the U.S.-European understanding reached on the necessity and parameters of these two agreements created pressure on Asian and Latin American countries to offer their support as well. In his opinion, these initiatives "would not have happened had we not initially tried to negotiate with the EU, reach an understanding with the EU, and then go out together to try to sell this." 45 Eizenstat also notes that such intensive U.S.-EU cooperation "strengthens the WTO and the multilateral trade system" and "provides important momentum for further liberalization" of the transatlantic and global marketplace. 46 In this context, some hope that one of the next steps will be the formulation of an ITA II, as recommended at the recent TABD Conference in Rome, to eliminate existing nontariff technical barriers to trade for products not covered by the initial ITA. 47
The United States and the European Union are also currently working collaboratively to complete a WTO financial services agreement. This agreement is aimed at allowing banks, securities, and insurance companies to establish and operate in foreign markets, providing them with the same "national treatment" received by domestic service providers and facilitating the cross-border supply of financial services between countries. Negotiations for such an agreement were initially begun as an extension of the Uruguay Round.48 Resumed this past April, negotiators hope to reach a permanent financial services accord by December 12, 1997. In response to lackluster participation from many WTO member countries, Washington and Brussels have once again joined forces, lobbying heavily among WTO members to conclude the agreement before the deadline. U.S. and European officials emphasize that liberalization is essential to economic stability and is especially important for Asian nations presently suffering from stock market crises and currency fluctuations. 49
Similarly, the United States and the European Union have taken the lead, in the OECD, on elaborating a Multilateral Agreement on Investment (MAI). The OECD hopes to conclude this agreement by its April 1998 ministerial meeting. Non-OECD members willing and able to meet its obligations will be permitted to accede to the MAI, which seeks greater investment protection and market access for investors. Among other provisions, the MAI would require countries to treat foreign investors the same as domestic firms, limit a wide range of regulatory laws, reduce restrictions on the movement of assets, and institute an investor-to-state dispute resolution mechanism. 50
Question 3. How important are shared economic and political values with respect to continued U.S.-EU economic partnership? How stable are these shared values on each side of the Atlantic?
Question 4. How successful has U.S.-European cooperation been in liberalizing global markets and creating a more open world trading system? What are the prospects for sustaining U.S.-EU cooperation in the WTO?
Potential Problems In U.S.-European Economic Relations And Negative Implications For The Transatlantic Partnership
Numerous observers on both sides of the Atlantic worry that the Western Alliance may become increasingly weakened in coming decades because of what they say are growing U.S.-European divisions in the economic arena. Supporters of this view organize their argument around four major themes:
* Persistent U.S.-European bilateral trade and investment disputes;
* Growing U.S.-European competition for global markets;
[rbrackmid] Possible negative effects of the EMU (European Monetary Union);
[rbrackmid] Diverging economic and security priorities.
Persistent U.S.-European Bilateral Trade and Investment Disputes
Some experts note the continued existence of transatlantic barriers to trade and investment and point to a persistent number of sector-specific disputes between the United States and the European Union. Consequently, they are skeptical that the two sides of the Atlantic will be able to pursue successfully greater transatlantic market liberalization, especially as some of the areas still to be tackled are the most divisive, such as agriculture. Jeffrey Schott states, "Attempts to eliminate export and domestic subsidies would prove even more contentious, especially in Europe, because it would require the dismantling of much of the Common Agricultural Policy." 51 Even after full implementation of the tariff cuts agreed to in the Uruguay Round, average EU tariffs on agricultural products will be approximately 75 percent (corresponding U.S. tariffs will be about 30 percent). 52 U.S. and European tariffs on textiles and apparel will also remain high, as will EU tariffs on autos and auto parts, automotive electronics, and nonferrous metals. 53 Some economic analysts also observe that the average EU tariff of 6.36 percent on American exports following the complete implementation of the Uruguay Round will still be higher than the corresponding 3.19 percent average tariff figure for U.S. imports from the Union. 54
Although significant progress has been made recently in eliminating some of the nontariff barriers to transatlantic trade and investment presented by standards, testing and certification requirements, and other regulatory differences, important obstacles remain. Many of these relate to differing environment, health, and safety standards. Recently, the most serious trade dispute between the United States and the European Union has focused on new EU safety rules designed to prevent the spread of bovine spongiform encephalopathy (BSE) or mad cow disease, and the approval this past July of a ban on all products containing "specified risk materials" such as spinal cords, brains, and eyes from use for any purpose within the Union. 55 Products affected by the ban, scheduled to come into force on January 1, 1998, would include pharmaceuticals and cosmetics containing tallow and other cattle derivatives. With $14 billion in U.S. exports at stake, Washington threatened to impose retaliatory sanctions and bring the dispute to the WTO. 56 U.S.-EU tensions over this issue were eased during the Rome TABD Conference in November 1997, although not completely eliminated. 57
Some of these sector-specific disputes also stem from varying U.S.-European popular attitudes and values. The EU has adopted a regulation prohibiting imports of fur and fur products from countries that do not ban the use of animal leg-hold traps or conform to humane trapping standards. Similarly, U.S. producers have expressed concern that the EU's "eco-label" program, designed for consumers as an indicator of products considered "environmentally friendly," will pose barriers to their exports. 58
U.S.-European friction also exists in other areas of the trade relationship. In its 1997 review of EU market barriers, the U.S. trade representative (USTR) cited, among others: agricultural subsidies; restrictions on broadcasting and motion pictures; and inadequate protection of intellectual property rights (IPR) for software and entertainment products in some member states.59 Meanwhile, in its most recent parallel review of U.S. market barriers, some of those highlighted by the European Union included: "Buy America" government procurement policies; excessive customs fees and requirements; regulatory differences at the state level; and the level of indirect support to U.S. aircraft manufacturers. 60
Question 5. How serious are these bilateral trade disputes? What will be their impact on the broad transatlantic relationship?
Growing U.S.-European Competition for Global Markets
Many experts believe that in addition to being the largest market in trade and investment for the United States, Europe is also America's biggest global competitor. 61 The European Union has a larger volume of global trade than does the United States. In 1996, EU external trade totaled $1.9 trillion, compared to $1.7 trillion for the United States. 62 In 1995, the EU had 40 percent of the Middle Eastern market and 16 percent of the Chinese market, while the United States had 13 percent and 12 percent, respectively. 63 In 1996, the EU share of total exports to Asia's emerging economies was 15.7 percent, Japan's share was 18 percent, while the U.S. share was 12.3 percent. 64 Some are anxious that the competition between the United States and Europe for emerging markets, especially in Latin America and Asia, is only likely to increase as markets continue to globalize and international trade and investment become even more important in maintaining healthy national economies. 65
The value of total U.S. trade at present represents nearly 30 percent of the gross domestic product of the United States, compared with about 13 percent in 1970. 66 According to U.S. Trade Representative Charlene Barshefsky, exports over the last four years have generated roughly one-fourth of the growth in U.S. gross domestic product (GDP). 67 Exports support an estimated 11.3 million U.S. jobs. 68 In short, many view U.S. export-driven growth as "one of the reasons the American economy today is sound and strong" and maintain that "the best way to continue this prosperity is to give our workers and businesses a full and fair chance to tap into the global economy." 69 And, these experts claim, the biggest international commercial opportunities will be in regions where populations, labor forces, and markets are growing the fastest. 70 In 1996, emerging market countries imported over $1 trillion in manufactured goods from industrialized nations. 71
Over the next decade, the USTR predicts that the economies of Asia and Latin America will grow at three times the rate of the American economy. The USTR forecasts that by the year 2000, Latin America and the Caribbean will exceed the EU as a destination for U.S. exports and exceed Japan and the EU combined by 2010. 72 Also by 2010, if current trends continue, it is expected that Asia's emerging markets will be the largest export market for the United States; Latin America (including Mexico) will be second. 73 Together, Asia and Latin America will represent 55 percent of U.S. exports. 74
Ambassador Barshefsky has commented, "In every region of the world, particularly Asia and Latin America, the two fastest growing regions of the world, our competitors are pursuing strategic trade policies and, in some cases, preferential trade arrangements that will open up markets for their exporters, their products, their workers, their farmers." 75 She notes that the EU has begun a process aimed at reaching a free trade agreement with MERCOSUR, comprised of Argentina, Brazil, Paraguay, and Uruguay, whose combined GDP is over $1 trillion. 76 An EU-MERCOSUR Summit is scheduled for the spring of 1999; its goal is to "launch a major partnership for the next century." 77 The EU has also concluded a framework agreement with Chile designed to lead to a free trade arrangement. 78 Similarly, the European Union has begun a dialogue with Asian leaders in order to develop closer political and economic ties. The Asia-Europe Meeting (ASEM), was established in March 1996 and includes the 15 members of the EU, the seven core members of the Association of Southeast Asian Nations (ASEAN), and Japan, China, and South Korea. 79 A summit meeting of heads of state is planned in early 1998. 80
Thus a number of American officials contend that the United States must continue to pursue additional market-opening agreements with key economies in Asia and Latin America in order to remain competitive in the global marketplace (in relation not only to the EU but also to other regions of the world) and to ensure continued U.S. prosperity. 81 In turn, the European Union worries about "U.S. free trade flirtations with Asia and Latin America" embodied in the U.S. proposal to create a Free Trade Area of the Americas (FTAA), and its attempts to strengthen its economic and political ties to Asia through the Asia Pacific Economic Cooperation (APEC) initiative. 82 In this increasingly competitive global environment, some commentators believe it will be difficult to sustain close transatlantic cooperation in multilateral economic and trade forums.
Many also feel that the United States and the European Union, in their drives to open markets in regions of the world such as Asia, often pursue incoherent policies that serve to undercut each other. 83 China and Japan represent two contentious examples. Washington views the EU as portraying itself as less demanding than the United States in its trade policies toward both countries and accuses the Union of seeking commercial contracts as a reward. 84 EU officials in turn object to U.S. negotiating styles and tactics, which they often view as too public and missionary in tone. 85 Nevertheless, some have observed that "in both Japan and China . . . the EU does not hesitate to claim a share of whatever new market opportunities Washington may negotiate." 86
Americans point to the outcome of the dispute with China over intellectual property rights. In 1995 and again in 1996, the United States threatened to block Chinese imports valued at over $1 billion if China did not institute better IPR safeguards and enforcement mechanisms. Ellen Frost has remarked that "after distancing themselves from Washington's vehement public campaign, EU officials hastened to Beijing to ensure that the gains that the United States had negotiated to settle the crisis would cover European companies as well." 87 Similarly, in 1995, the EU condemned the Clinton administration's threats to impose high tariffs on Japanese luxury car imports. The New York Times reported that in response, then U.S. trade representative Mickey Kantor accused the Union of "looking for a free ride in siding verbally with Japan even as it hoped the United States would do the dirty work to open Japanese markets for all." 88 Kantor was quoted as stating, "Our European friends are always willing to hold our coats while we get our nose bloodied." 89 Some experts contend that not only do such incidences produce resentment on both sides of the Atlantic, they hinder the ability of the United States and Europe to manage the multilateral system because "other countries see that Europe and the United States can be divided, and play the transatlantic partners off against one another." 90
Question 6. How will growing competition between the two sides of the Atlantic for emerging markets evidence itself? How divisive will this transatlantic competition be?
Question 7. How different are U.S. and EU commercial approaches to Japan and China? How problematic?
Question 8. Will the growth in U.S. trade and investment in Asia and Latin America lead to a diminishing of Washington's interest in transatlantic trade and the wider U.S.-European relationship?
Possible Negative Effects of the EMU
Europe's Economic and Monetary Union (EMU) represents another potential source of economic friction between the United States and Europe in the period ahead. The euro is slated to become legal tender in January 1999. Most economists and policymakers agree that the euro will eventually play a more important global role than its constituent European currencies do today. 91 C. Fred Bergsten argues that a bipolar currency regime dominated by Europe and the United States, with Japan as a junior partner, will replace the dollar-centered system that has prevailed for most of this century. 92 Depending on the number of initial participants, euro-zone countries could collectively represent an economy at least two-thirds that of the United States, with a greater share of global trade, as indicated earlier. 93 Many observers assert that the euro will eventually challenge the dollar as the currency of international commerce, thereby representing the first real competition for the dollar since it surpassed the pound sterling. 94 Some predict that between $500 billion to $1 trillion of international investment may shift from dollars to euros. 95 Although there is some disagreement among economists regarding how quickly portfolio diversification will occur and therefore how rapidly the euro will come to rival the dollar as a key international reserve currency, many say that this shift will have a significant, long-term effect on exchange rates--that is, generating greater fluctuation and instability in the dollar-euro exchange rate than that which the United States currently experiences with individual European currencies. 96 This, in turn, "could cause prolonged misalignments that would not only have adverse effects in both Europe and the United States but also provoke protectionist pressures on the global trading system." 97
Some analysts are anxious that the EMU will decrease the dependence of the European economy on exports (because intra-European trade will essentially become domestic commerce) and thus result in a change in perception of the importance of international free trade. Christopher Taylor comments, "I don't think we can be absolutely confident that the trend toward international liberalization [of trade] will [then] continue." 98 These skeptics question whether Europe will be willing to further expose its farmers or bankers to international competition. 99 A reduced European commitment to free trade, they stress, would be detrimental not only to the United States but to the international trading system as a whole.
Others have observed that one of the strongest arguments among Europeans for the single currency is that the EMU is necessary to enhance Europe's competitiveness in the global economy. The EMU advocates maintain that without the euro, European countries will increasingly become divided and weak, unable to compete internationally with Asia's emerging, low-wage economies or with the United States' large, integrated economy. 100 A strong euro, it is hoped, will both spur growth and investment in Europe and, consequently, stimulate European trade and investment around the globe. A number of commentators surmise that the United States might "confront a larger, more cohesive, and more self-confident and powerful partner in the monetary union than it has faced in the past." 101 Although some argue that a more united and integrated Europe will constitute a better, more capable, and more efficient collaborator for the United States, others fear that greater European assertiveness will increase transatlantic economic tensions because the members of the monetary union will be both more competitive and less amenable to U.S. influence over their economic policies. 102
Question 9. What is the likely effect of the EMU on U.S.-EU economic relations? Will the EMU increase EU protectionism?
Diverging Economic and Security Priorities
A number of economists and strategists believe that economic and security priorities in Washington and Brussels are diverging. Several analysts view the conflict between EU economic interests and policies and U.S. national security objectives as the largest potential threat to Alliance cohesion. Some Americans argue that the European Union is increasingly pursuing economic interests in regions of the world such as the Middle East and East Asia at the expense of Western security concerns. Philip Gordon writes that Europeans, in the absence of the threat posed by the Soviet Union and "with persistent double-digit unemployment and their own domestic priorities, are now less likely to follow Washington's lead on political problems if it means denying themselves commercial relationships." 103 At the same time, Europeans are equally frustrated by what they perceive as U.S. unilateralism--that is, the United States acting alone, imposing sanctions and other commercial barriers in order to protect its supposed security interests, regardless of established multilateral trade rules and procedures. 104 Related EU grievances include export, import, procurement, and investment restrictions, many of which the European Union perceives as excessive and only tangentially related to protecting U.S. national security. 105
Two pieces of U.S. sanctions legislation, relating to Cuba, Iran, and Libya, top the list of recent examples. The EU strongly opposes both pieces of legislation, objecting in particular to their extraterritorial dimensions. The Cuban Liberty and Democratic Solidarity Act (LIBERTAD), signed by President Clinton on July 16, 1996, and better known as the Helms-Burton Act, is designed to promote democracy and human rights in Cuba. It mandates penalties on foreign individuals and companies that traffic in expropriated U.S. property in Cuba. The European Union maintains that the United States has no jurisdiction to extend its laws beyond its borders, punishing corporations for activities they conduct completely outside U.S. territory, and thereby infringe the sovereignty of other nations. The U.S. Congress, on the other hand, insists that the legislation is necessary in order to foster political change in Cuba and protect the interests of American citizens whose private property was confiscated after the 1959 Cuban Revolution. Title IV of the act, which has taken effect, allows the U.S. government to deny entry into the United States to senior business executives (as well as their immediate families) that head companies whose trade and investment in Cuba involves expropriated American property. 106 So far, however, Title III of the act, which permits U.S. citizens to sue foreign firms that have profited from the use of confiscated property, has been waived by President Clinton, and thus no lawsuits have yet been filed. 107
In response to the passage of the Helms-Burton Act, the European Union adopted an antiboycott regulation that makes it illegal for EU companies to comply with the act and grants them the right to counter-sue in European courts. The EU also brought a complaint against the United States in the WTO, arguing that the law violates the organization's free trade rules. Washington countered that these WTO rules were not applicable in this case because the Helms-Burton Act represented a matter of foreign policy, not trade. 108 On April 11, 1997, only days before the EU was scheduled to file its first brief on the issue in the WTO, the Union consented to suspend its complaint for six months in light of the agreement between Washington and Brussels to pursue negotiations on a comprehensive and permanent solution to the dispute over Helms-Burton. 109 Under this accord, the EU agreed to work with the United States to establish disciplines and principles to protect international investments and properties. In exchange, the Clinton administration agreed to seek from Congress a relaxation of parts of the act, such as Title IV. Issues to be discussed included the scope of extraterritorial legislation and the establishment of common rules to discourage investment in expropriated property in Cuba and elsewhere. 110
The deadline for the conclusion of these discussions passed in October 1997 without the United States and the EU reaching a settlement. The two sides did announce that they were making progress on achieving an agreement and would continue talking. The EU has not reinstated its claim in the WTO although it retains the right to do so. 111 Some commentators argue that "the harsh truth is that almost no progress has been made in narrowing the fundamental differences of principle that separate the two sides," nor is much likely in the near future. 112 At the same time, many observe that neither the United States nor the European Union "seems willing to start real shooting. . . . The European Union points out that . . . no European company has been significantly penalized under the Helms-Burton act. . . . Until one is, they seem willing to hold off their WTO action. The Clinton administration, which suspects that it might lose before a WTO panel, seems equally willing to go on waiving the rules." 113 Having already threatened to disregard any WTO ruling against Helms-Burton, the administration recognizes that in such a case it would be placed in the uncomfortable position of potentially undermining the organization and world trading system that it was instrumental in creating. 114
Several pundits have surmised that the Union's willingness to extend its deadline for resolving the dispute over Helms-Burton was due to pressures building within the U.S. Congress to impose penalties in response to the conclusion of a major gas deal among France, Russia, Malaysia, and Iran that likely violates the other piece of major U.S. sanctions legislation--the Iran-Libya Sanctions Act (ILSA), also known as the D'Amato Act. 115 Signed shortly after Helms-Burton in August 1996, ILSA is aimed at economically isolating Iran and Libya, thereby decreasing their ability to support terrorism and pursue the acquisition of weapons of mass destruction. It requires the president to implement at least two out of six mandatory penalties on foreign companies that invest more than $40 million in either country's oil or gas sectors. 116 If a violation is determined, the act provides the president with the options of waiving sanctions if it is in the national interest or delaying sanctions pending consultations with the governments primarily responsible for regulating the companies concerned. 117
Although it was signed more than a year ago, until recently ILSA remained relatively untested. But on September 28, 1997, Total SA, one of France's largest oil companies, announced that it had signed a $2 billion contract with Iran, in conjunction with Russia's Gazprom and Petronas of Malaysia, to explore and develop Iran's South Pars gas field. The French government fully supported the venture and warned the United States against imposing sanctions under ILSA. French prime minister Lionel Jospin stated bluntly, "Nobody accepts that the United States can pass a law on a global scale. . . . American laws apply in the United States. They do not apply in France." 118 Washington responded by initiating an investigation, as required by ILSA, to determine whether the deal violates the act and therefore warrants the application of the sanctions provisions. Most experts believe that eventually the administration will find that Total and its investment partners are violating the Iran-Libya Sanctions Act and will then be faced with a difficult choice between maintaining the integrity of the sanctions regime or generating increased economic, as well as political, friction within the Alliance. 119
Question 10. How serious an irritant in the transatlantic relationship are the Helms-Burton and D'Amato Acts? Is U.S.-EU compromise possible?
Question 11. Can these disagreements regarding sanctions be isolated from the broader U.S.-European strategic relationship?
The Future Of U.S.-European Economic Relations
European and American policymakers and economists have proposed several initiatives to manage transatlantic commercial relations in the period ahead. Although based on furthering the U.S.-European economic relationship, the initiatives, it is hoped, will also contribute to the development of a more robust transatlantic partnership.
Building Blocks
Some experts advocate continuing along the path set out at the December 1995 U.S.-EU Summit in Madrid, namely, proceeding step-by-step with the construction of the New Transatlantic Marketplace within the framework of the New Transatlantic Agenda, a "building blocks" approach. 120 Supporters point to the large number of bilateral and multilateral agreements that the United States and its European partners have concluded in the past two years as proof of the success of this approach. They also note the momentum this incremental process has generated for continued progress toward a global marketplace and open world trading system. Its pragmatic and concrete nature has been essential to gaining the support of the transatlantic business community, which in turn, through the TABD, has been instrumental in promoting many of the accords aimed at reducing tariff and nontariff barriers. 121
However, some analysts criticize the fact that this approach lacks a firm deadline for eliminating transatlantic trade and investment barriers. According to Ellen Frost, without a deadline regulatory authorities and other officials will be less likely to abandon long-held practices and attitudes, thereby impeding the removal of market barriers in all sectors. 122 Others have argued that although the building blocks approach is innovative, it is limited in scope and not ambitious enough to form the basis of a comprehensive and invigorated transatlantic partnership in the years ahead. Bruce Stokes states that "standardization of car headlights . . . will not inspire the American public to renew its commitment to defend European security. . . . At a time when the U.S.-European military relationship is suffering an identity crisis . . . the alliance needs a bold new vision . . . to demonstrate the benefits of the partnership." 123
Question 12. What are the advantages and disadvantages of this "building blocks" approach?
The Transatlantic Free Trade Agreement (TAFTA)
Prior to the 1995 Madrid Summit, much discussion across the Atlantic focused on the establishment of a transatlantic free trade agreement. 124 This proposal enjoyed the support of a wide range of European and American leaders, political analysts, and trade experts for two main reasons. First, it was argued that the creation of a free trade zone between Europe and the United States would yield comprehensive economic benefits by eliminating tariffs, quotas, and nontariff barriers. Clyde Prestowitz estimates that trade gains from TAFTA would be approximately $70 billion over seven years, with a total boost to U.S. GDP of $42 billion. 125 Second, and more important, supporters emphasized that TAFTA would provide a new anchor for transatlantic relations following the demise of the Soviet threat that had been so essential to maintaining the cohesion and unity of the Atlantic Alliance. Many argued, among them former British prime minister Margaret Thatcher, that TAFTA would be even more necessary in the years ahead, in light of the increasing globalization of markets, to prevent economic competition between the two sides of the Atlantic from jeopardizing the wider transatlantic relationship. 126
Ultimately, however, TAFTA did not gain the approval of U.S. and EU leaders in 1995, who instead opted for the incremental approach embodied in the New Transatlantic Agenda. Two major stumbling blocks were U.S. reluctance to undertake a new trade initiative with the 1996 election approaching, especially so soon after battling for the North American Free Trade Agreement (NAFTA); and French opposition within the EU to the changes such a free trade area would necessitate in European agricultural subsidies and broadcast programming. 127
Other trade specialists and economists strongly oppose concluding a Transatlantic Free Trade Agreement. Although many acknowledge its potential political benefits for the relationship between the two sides of the Atlantic, they criticize it from a trade policy perspective. They contend that TAFTA would not represent a free trade zone but rather a preferential trade area that could undermine the WTO, especially if troublesome sectors such as agriculture were excluded in order to facilitate an agreement. 128 Article XXIV of GATT permits regional trade organizations as long as they cover "substantially all" trade among participating countries and avoid increasing existing trade restrictions on nonmember states. Several experts maintain that it would be difficult to stretch the WTO definition of "substantially all" to exempt the farm sector, even though agriculture accounts for only about 5.5 percent of bilateral U.S.-EU trade because "the recent Uruguay Round interpretation of the provisions of Article XXIV was negotiated inter alia to preclude such creative accounting." 129 Furthermore, they claim that excluding agriculture "would defeat the broader purpose of cementing transatlantic relations. Agriculture is the source of the most frequent and fractious bilateral trade disputes, so ignoring those problems will not produce harmony in the alliance." 130
Even if a transatlantic free trade zone were constructed to comply with the regional trade requirements of Article XXIV of GATT, such an arrangement between the world's richest and largest trading regions would likely affect the multilateral trading system adversely by making it harder to engage developing countries in reciprocal trade talks aimed at opening new markets. 131 Philip Gordon has noted that areas such as Asia might even respond with their own preferential trade agreements. 132 He also comments that TAFTA negotiations over sensitive sectors such as agriculture, textiles, aviation, and audiovisuals could generate new quarrels that would be detrimental to Alliance cohesion. 133 Finally, some pundits question the true economic advantages of a Transatlantic Free Trade Area, as U.S.-European tariffs are already relatively low. 134
Question 13. Is TAFTA likely? Is TAFTA desirable?
A Comprehensive Political-Economic Community (NATEC)
In order to address the growing economically based political tensions within the Atlantic Community, some analysts advocate the establishment of a comprehensive initiative between the United States and Western Europe dedicated not only to promoting increasingly open world markets but also to managing trade-related foreign policy issues. Supporters argue that this approach would promote greater Western coherence on trade and security matters, reduce U.S.-European disputes over conflicting economic and strategic priorities, help buttress transatlantic cohesion, and thereby contribute to an invigorated U.S.-European partnership. Ellen Frost has developed such a model--the North Atlantic Economic Community (NATEC)--that would combine trade and business initiatives along the lines of APEC with a strategic, political-economic orientation corresponding to NATO's political-military nature. 135 In her concept, NATEC would be a nonpreferential framework covering all sectors with no exceptions and would establish a clear deadline for free and open transatlantic trade (the year 2010 is suggested). 136 NATEC would also promote the further global liberalization of trade consistent with the goals of the WTO and challenge other regional groupings and countries to implement freer trade. 137 Finally, as Frost remarks, "NATEC would stand as a strong symbol of a renewed transatlantic alliance. . . . NATEC's nature as a community based on common principles and goals would underscore the fundamental strength of the transatlantic relationship." 138
Note 1: Ellen Frost, Transatlantic Trade: A Strategic Agenda (Washington, D.C.: Institute for International Economics, 1997), p. 7. See also Jeffrey M. Lang, deputy U.S. trade representative, Prepared Statement before the House Ways and Means Committee, Subcommittee on Trade, Federal News Service, July 23, 1997; and Franklin J. Vargo, acting assistant secretary of commerce for market access and compliance, Prepared Statement before the House Committee on International Relations, Subcommittee on International Economic Policy and Trade, Federal Document Clearing House, September 10, 1997. Electronic Versions. Back.
Note 2: Lang, Prepared Statement; and Timothy J. Hauser, acting under secretary of commerce for international trade, Prepared Statement before the House Ways and Means Committee, Subcommittee on Trade, Federal News Service, July 23, 1997. Electronic Version. Some estimates of the combined value of U.S.-EU trade and investment range as high as $1.7 to $2 trillion. These amounts are derived by adding the trade flows across the Atlantic with the production of U.S. and European firms in each other's markets. See Vargo, Prepared Statement; and David Rothkopf, acting under secretary of commerce for international trade, Prepared Statement before the House Committee on International Relations, Federal News Service, December 14, 1995. Electronic Version. See also Bruce Stokes, "Introduction: A Transatlantic Vision," in Open for Business: Creating a Transatlantic Marketplace, ed. Bruce Stokes (New York: Council on Foreign Relations, 1996), p. 4. Back.
Note 3: Lang, Prepared Statement. See also Transcript of Press Conference by President Clinton, Prime Minister Kok, and President Santer at Signing of U.S.-EU Agreement, The White House, M2 Presswire, May 29, 1997. Electronic Version. Back.
Note 4: Canada, however, is America's largest export market, not the EU. See Hauser, Prepared Statement; and Vargo, Prepared Statement. For trade figures, see Lang, Prepared Statement; and Terence P. Stewart, Esq., managing partner, Law Offices of Stewart and Stewart, Prepared Statement before the House Ways and Means Committee, Trade Subcommittee, Federal News Service, November 4, 1997. Electronic Version. Back.
Note 5: For exports and imports of merchandise, see International Monetary Fund, Direction of Trade Statistics Yearbook 1997 (Washington, D.C.: International Monetary Fund, 1997), pp. 72-73. For exports and imports of services, see U.S. Department of Commerce, Survey of Current Business, vol. 77, no. 10 (October 1997), pp. 110-111. Back.
Note 6: U.S. Department of Commerce, Survey of Current Business, vol. 77, no. 7 (July 1997), p. 36; U.S. Department of Commerce, Survey of Current Business, vol. 77, no. 9 (September 1997), p. 88. Back.
Note 8: European-American Business Council, The United States and Europe: Jobs, Trade and Investment, fourth edition, Fall 1997. In deriving these statistics, the European-American Business Council defines "European companies" as those within the 15 states of the EU plus the four countries of the European Free Trade Area (Iceland, Liechtenstein, Norway, and Switzerland). Back.
Note 9: U.S. Department of Commerce, Survey of Current Business, vol. 77, no. 7 (July 1997), p. 36; U.S. Department of Commerce, Survey of Current Business, vol. 77, no. 9 (September 1997), p. 88. Back.
Note 10: Hauser, Prepared Statement. Back.
Note 11: Rothkopf, Prepared Statement. Back.
Note 12: Vargo, Prepared Statement. Back.
Note 14: Ambassador Hugo Paemen, head of the delegation of the European Commission to the United States, Testimony before the House International Relations Committee, Subcommittee on International Economic Policy and Trade, Federal News Service, June 4, 1997. Electronic Version. Back.
Note 15: Nevertheless, some experts assert that the importance accorded to the transatlantic economic relationship is likely to erode in the period ahead as American and European commerce with other regions of the world grows. They point out that according to the USTR, U.S. total trade (i.e., imports and exports) across the Pacific in 1996 was more than 75 percent greater than total transatlantic trade. However, others maintain that this estimate does not include investment and therefore does not accurately depict the full extent of U.S.-European commercial relations. David Rothkopf states that "trade figures . . .portray only part of the story. Most international business is done by investing and producing in foreign markets--not by exporting." See Rothkopf, Prepared Statement. See also Office of the U.S. Trade Representative, "1997 Trade Policy Agenda and 1996 Annual Report of the President of the United States on the Trade Agreements Program," February 28, 1997. Electronic Version. Back.
Note 16: Lang, Prepared Statement. Richard Rosecrance has observed that "one should not place too much emphasis upon the existence of interdependence per se. European nations in 1913 relied upon the trade and investment that flowed between them; that did not prevent the political crisis which led to a breakdown of the international system and to World War I." Others observers agree. However, experts draw a distinction between present-day economic interdependence and that which existed prior to 1914, noting that the current "interpenetration of investment in industrial economies provides a mutual stake in each other's success that did not exist in the nineteenth century or before World War I." See Richard Rosecrance, "The Trading State--Then and Now," in International Politics, ed. Robert C. Art and Robert Jervis (New York: HarperCollins, 1996), pp. 343, 348. Back.
Note 17: Office of the Press Secretary, The White House, "Fact Sheet: The New Transatlantic Agenda," December 16, 1996. Electronic Version. Back.
Note 18: Text of The New Transatlantic Agenda, December 3, 1995. Electronic Version. Back.
Note 19: In congressional testimony, Acting Assistant Secretary of Commerce Vargo noted that the TABD concept was advanced because of the department's belief that "given the enormous cross-investment by U.S. and European firms in each others' markets, a single transatlantic business community already existed that could agree jointly on common solutions which would benefit both the U.S. and European economies." See Vargo, Prepared Statement. Back.
Note 20: Selina Jackson, "The Transatlantic Business Dialogue: An Entrepreneurial Force behind the New Transatlantic Agenda," ECSA Review, vol. IX, no. 3 (Fall 1996). Electronic Version. Back.
Note 21: It is estimated that between 50 and 80 percent of tests on products traded between the EU and the United States must be completed and paid for twice on both sides of the Atlantic. These redundant tests often represent significant costs and therefore frequently constitute nontariff barriers to greater trade and investment. Franklin J. Vargo, acting assistant secretary of commerce for market access and compliance, Testimony before the House Committee on International Relations, Subcommittee on International Economic Policy and Trade, Federal News Service, September 10, 1997. Electronic Version. Back.
Note 22: Rothkopf, Prepared Statement. The TABD meets prior to the semiannual U.S.-EU summits and prepares a special report for each summit that includes the joint recommendations of U.S. and EU business leaders. The TABD is also a major source of analysis for the joint study of U.S.-EU trade barriers initiated under the NTA. See Vargo, Testimony. Back.
Note 23: Stuart Eizenstat, under secretary of state for economic, business, and agricultural affairs, "Building the Transatlantic Marketplace: How Are We Doing?" Address before the U.S. Chamber of Commerce, June 20, 1997. Electronic Version. Back.
Note 25: The TABD also played a pivotal role in the MRA negotiating process. At its November 1996 conference in Chicago, the TABD achieved an agreement in principle between the United States and the European Union on the pharmaceuticals component of the MRA, an area that had proved particularly difficult for U.S. and EU officials to resolve and which, consequently, was holding up progress in the other sectors under discussion. By breaking this logjam in the MRA negotiations, the TABD provided the "critical momentum" to conclude the agreements, according to Under Secretary of State for Economic, Business, and Agricultural Affairs Stuart Eizenstat. The Chicago Conference is also credited with reaching agreement to base the MRAs on the assumption that existing certification mechanisms in the United States and the EU are mutually trustworthy. See Matt Brietfelder, "The Transatlantic Business Dialogue: Chicago Conference Exceeds Expectations," Business America, vol. 117, no. 11 (November 1996), p. 22; Eizenstat, "Building the Transatlantic Marketplace"; and Paula Stern, president, The Stern Group, Inc. and chair, U.S. Working Group, Transatlantic Committee on Standards, Certification, and Regulatory Policy, Transatlantic Business Dialogue, Prepared Statement before the House Committee on International Relations, Subcommittee on International Economic Policy and Trade, Federal News Service, September 10, 1997. Electronic Version. Back.
Note 26: Vargo, Prepared Statement. Back.
Note 27: Under the terms of the Veterinary Equivalence Agreement, which covers over $3 billion in two-way trade, the two trading partners will recognize each other's sanitation standards governing the preparation of dairy, fish, and beef products among others. Because of this agreement's long and difficult negotiating process, some products remain outside the mutually recognized testing procedures; for example, the United States and the European Union continue to disagree on acceptable standards for poultry meat. Nevertheless, it is hoped that the agreement will provide a framework for resolving such differences on animal health issues and lead to the removal of even more nontariff barriers in this sector in the future. See Vargo, Prepared Statement; and "Poultrymeat Left Out of Eleventh-Hour Veterinary Agreement," European Report, May 3, 1997. Electronic Version. Back.
Note 28: The Customs Agreement is designed to improve transatlantic efforts to combat customs fraud by promoting greater information-sharing among customs officials and to facilitate legal trading opportunities. See "United States and European Union Announce Steps to Address Common Problems," M2 Presswire, May 29, 1997. Electronic Version. The Anti-Bribery Agreement will require all member states to prohibit the bribery of foreign officials, thereby leveling the playing field for U.S. companies seeking contracts from foreign governments and state-owned businesses. See "Commerce Secretary William M. Daley Hails OECD Anti-Bribery Agreement," U.S. Department of Commerce News Release, November 21, 1997. Electronic Version. Back.
Note 29: See Stern, Prepared Statement. Back.
Note 30: Transatlantic Business Dialogue, "Final Communiqué," Rome Conference, November 7, 1997. Electronic Version. Back.
Note 31: Ibid. Some have suggested formulating an "MRAII," which would expand the product scope of the original MRA and deepen the existing commitments. Some of the sectors in the present agreement, such as medical devices, are still limited in the types of products covered. See Stern, Prepared Statement. Back.
Note 32: Rothkopf, Prepared Statement; and Claude Barfield and Douglas A. Irwin, "The Future of Free Trade," Business Economics, vol. 32, no. 2 (April 1997), p. 26. Back.
Note 33: Ellen Frost has commented, "The core of the Atlantic idea . . . is the notion of a Western community of values whose members are committed to common political, security, and economic goals." Frost, Transatlantic Trade, p. 29. Back.
Note 34: Vargo, Prepared Statement. Back.
Note 35: Gregory Treverton, "An Economic Agenda for the New Era," America and Europe: A Partnership for a New Era, ed. David C. Gompert and F. Stephen Larrabee (New York: Cambridge University Press, 1997), pp. 51, 77. Back.
Note 36: Rothkopf, Prepared Statement. Back.
Note 38: Vargo, Prepared Statement. Back.
Note 40: Ibid.; and Brietfelder, "The Transatlantic Business Dialogue." Back.
Note 41: The 300 products included in the ITA represent a compromise between the United States and Europe and include the bulk of industrial information products. In deference to EU interests, however, consumer electronics and audio materials, such as music CDs and television monitors, are not part of the agreement. See Eizenstat, "Building the Transatlantic Marketplace"; Kenneth James, "Historic Tariff-Free IT Accord Is in the Bag," Business Times (Singapore), December 13, 1996, p. 1; and "Extension and Acceleration of Duty Elimination in the IT Sector," M2 Presswire, November 13, 1997. Electronic Version. Back.
Note 42: Transatlantic Business Dialogue, "Seville Conference: Overall Conclusions," November 1995. Electronic Version. Back.
Note 43: Office of the U.S. Trade Representative, Statement of Ambassador Charlene Barshefsky, "Basic Telecom Negotiations," February 15, 1997. Electronic Version. See also, Alan P. Larson, assistant secretary of state for economic and business affairs, "The Transatlantic Marketplace and Global Challenges," Address before the European Institute, March 11, 1997. Electronic Version. Back.
Note 44: "Business Leaders Generate Progress, U.S. Diplomat Says," Eurowatch, July 11, 1997. Electronic Version. Back.
Note 45: Stuart Eizenstat, Remarks before the U.S. Chamber of Commerce, Federal News Service, June 20, 1997. Electronic Version. Back.
Note 47: Transatlantic Business Dialogue, "Final Communiqué," Rome Conference. Back.
Note 48: These negotiations were derailed in June 1995 by the United States, which believed that Asian and Latin American countries were not providing enough opportunities for foreign access. Tani Freedman, "Financial Services Talks Inch Towards Finale, but Problems Remain," Agence France Presse, November 12, 1997. Electronic Version. Back.
Note 49: As of mid-November, although a number of countries had tabled more liberal market access offers, less than half of the 96 countries involved in the talks had made firm commitments. See "Top-Level Financial Services Negotiations Set for December 8," Agence France Presse, November 14, 1997. Electronic Version. See also Freedman, "Financial Services Talks Inch Towards Finale." Back.
Note 50: Dan MacLeod, "Global Investors: Pushing Ahead of the Nation-State?" World Paper, August 1997, p. 3; and Larson, "The Transatlantic Marketplace and Global Challenges." Back.
Note 51: Jeffrey J. Schott, "Reflections on TAFTA," in Open for Business: Creating a Transatlantic Marketplace, ed. Bruce Stokes (New York: Council on Foreign Relations, 1996), p. 36. Back.
Note 53: Frost, Transatlantic Trade, p. 13. Back.
Note 54: Clyde V. Prestowitz, Jr., Lawrence Chimerine, and Andrew Z. Szamosszegi, "The Case for a Transatlantic Free Trade Area," in Open for Business: Creating a Transatlantic Marketplace, ed. Bruce Stokes (New York: Council on Foreign Relations, 1996), p. 24. Other experts do not view these remaining differences in tariffs as cause for much concern, maintaining that the gains of further bilateral tariff reductions would be relatively small compared to those reaped from tariff liberalization in other regions of the world. See Frost, Transatlantic Trade, p. 13. Back.
Note 55: Angus MacKinnon, "New EU-U.S. Trade Battle Looms Over "Mad Cow" Ban," Agence France Presse, November 5, 1997. Electronic Version. Back.
Note 56: Neil Buckley, "U.S. Threatens EU Over Meat Safety Rules," Financial Times, November 6, 1997, p. 4. Back.
Note 57: The United States insisted that the EU recognize its territory as a BSE-free zone and therefore, exempt its products from the same safety standards. The European Union argued that America could not be declared BSE-free because cases of a BSE-related disease had been reported in sheep in the United States. See John Tagliabue, "Rome Talks Seek to Defuse Trade Disputes," New York Times, November 8, 1997, p. D2. Back.
Note 58: Although the program is voluntary, U.S. industries fear that European customers and retailers will prefer products with an "eco-label." See Office of the U.S. Trade Representative, "1997 Trade Policy Agenda and 1996 Annual Report"; and "EU's New Eco-Label Called Trade Barrier," Pulp and Paper, vol. 70, no. 10 (October 1996), p. 19. Back.
Note 59: Frost, Transatlantic Trade, p. 16. Back.
Note 60: European Commission, "Report on United States Barriers to Trade and Investment," July 1997. Electronic Version. Back.
Note 61: Rothkopf, Prepared Statement. Back.
Note 62: C. Fred Bergsten, "The Dollar and the Euro," Foreign Affairs, vol. 76, no. 4 (July/August 1997), p. 87. Back.
Note 63: Rothkopf, Prepared Statement. Back.
Note 64: Nancy Dunne, "U.S. Slips Behind in Key Emerging Markets," Financial Times, October 29, 1997, p. 10. Back.
Note 65: Charlene Barshefsky, representative-designate United States trade, Testimony before the House Ways and Means Committee, Trade Subcommittee, Federal Document Clearing House, March 18, 1997; Charlene Barshefsky, U.S. trade representative, Testimony before the House International Relations Committee, Federal News Service, June 10, 1997; Mickey Kantor, U.S. trade representative, Address before the Washington Board of Trade, Federal News Service, December 1, 1995. Electronic Versions. Back.
Note 66: Office of the U.S. Trade Representative, "1997 Trade Policy Agenda and 1996 Annual Report." Back.
Note 67: Barshefsky, Testimony, March 18, 1997. Back.
Note 68: According to Barshefsky, over 1.4 million of the 11.3 million export-related jobs in the United States were created by the increase in exports in the last four years. She cited the following export increases since 1993: U.S. manufactured exports by 42 percent, high-tech exports by 45 percent, agricultural exports by 40 percent, and services exports by 26 percent. See Barshefsky, Testimony, March 18, 1997; and Barshefsky, Testimony, June 10, 1997. Back.
Note 69: Barshefsky, Testimony, June 10, 1997. Back.
Note 70: Kantor, Address before the Washington Board of Trade. Back.
Note 71: Barshefsky, Testimony, June 10, 1997. Back.
Note 73: Kantor, Address before the Washington Board of Trade. In this prediction, Japan is excluded because it is an industrialized economy. Back.
Note 75: Barshefsky, Testimony, March 18, 1997. Ambassador Barshefsky also argued that the ability of the United States to conclude such trade agreements, and thus remain competitive, depends in part on securing fast-track negotiating authority. Fast-track authority commits Congress to accept or reject the outcome of the president's trade negotiations without amendment. In 1993, this authority was allowed to lapse. On November 10, 1997, President Clinton and Republican leaders of the House of Representatives, who had been working in tandem to gain enough votes to pass a bill giving the president such authority, decided to postpone the vote indefinitely. Recognizing that they lacked the number of votes necessary to pass the legislation, they agreed to delay bringing it to the floor in order to avoid an embarrassing defeat for the president. See Martin Wolf, "Fast-Track to Nowhere," Financial Times, November 11, 1997, p. 15; and John E. Yang, "Lacking Support, Clinton Postpones `Fast Track' Vote," Washington Post, November 10, 1997, p. A1. Back.
Note 77: Axel Krause, "Rediscovering Latin America," Europe, November 1997, p. 16. This summit was first proposed by French president Jacques Chirac in March 1997 during a tour of several Latin American countries. See François Raitberger, "France Calls for Euro-Latin Summit," Reuters North American Wire, March 12, 1997. Electronic Version. Before embarking on this trip, Chirac commented, "Latin America understands perfectly that it is not in its interest to lock itself into exclusive regional integration. . . . Its vocation is to be . . . open to the world, and its essential economic interest, trade, investment, aid, is not with the United States but towards Europe." See "Chirac Call to Latin America," Financial Times, March 10, 1997, p. 2. Back.
Note 78: Ambassador Barshefsky noted that the Clinton administration also intended to pursue a free trade accord with Chile in the near future but that its ability to do so rested on being granted fast-track authority. She stated, "The Chilean government itself has told U.S. that they will not negotiate final agreements without an assurance that Congress cannot renegotiate them." See Barshefsky, Testimony, June 10, 1997. Back.
Note 79: "Asian, European Economic Ministers Call for Closer Ties," JEI Report, October 10, 1997. Electronic Version. Back.
Note 80: Lionel Barber, "Seeking Closer Asian Ties," Europe, November 1997, pp. 20-21. Back.
Note 81: Barshefsky, Testimony, June 10, 1997. See also Barshefsky, Testimony, March 18, 1997. Barshefsky noted that China and Japan, for example, have undertaken efforts to enhance commercial relations with Latin America. Also, Latin America is China's second fastest growing export market. Back.
Note 82: Stokes, "Introduction: A Transatlantic Vision," p. 2. See also Krause, "Rediscovering Latin America," p. 17. Back.
Note 83: Richard Steinberg remarks, "In trade disputes that both powers have with third countries, particularly in Asia . . . not only do the two powers rarely act in concert, the European Union and the United States are each tempted to cut a separate preferential deal with third countries and regions and sometimes to explicitly agree to act against the interests of each other." See Richard H. Steinberg, "Transatlantic Management of the Global Trading System," in Open For Business: Creating a Transatlantic Marketplace, ed. Bruce Stokes (New York: Council on Foreign Relations, 1997), p. 103. Back.
Note 84: Frost, Transatlantic Trade, pp. 55-56. See also Steinberg, "Transatlantic Management of the Global Trading System," p. 105. Back.
Note 85: Ibid., pp. 54, 56. Back.
Note 88: David E. Sanger, "Trade Fight with Japan Is Widening," New York Times, May 19, 1995, p. D1. Back.
Note 90: Steinberg, "Transatlantic Management of the Global Trading System," p. 104. Back.
Note 91: "Why Non-Europeans Should Care about EMU," The Economist, March 29, 1997, p. 86. Back.
Note 92: Bergsten, "The Dollar and the Euro," p. 83. Back.
Note 94: Ibid., p. 83; and Bruce Stokes, "Bank on It," National Journal, vol. 10, no. 1 (January 4, 1997), p. 25. Back.
Note 95: Bergsten, "The Dollar and the Euro," p. 84. Back.
Note 96: Bergsten comments, "Many analysts agree that the euro will rival the dollar as the world's leading currency. Most believe, however, that such a shift will take considerable time, since any redistribution of international portfolios occurs incrementally. But there is evidence from the history of major currencies that major shocks can produce rapid changes in portfolio composition." See Bergsten, "The Dollar and the Euro," pp. 84, 91. Deputy Treasury Secretary Lawrence Summers summarizes the majority viewpoint succinctly: "The revolution in European financial markets which many expect to follow EMU will not happen overnight. The dollar will remain the primary reserve currency for the foreseeable future, and any further erosion in its relative position in the system is likely to happen, if it happens, only slowly." As quoted in Martin Walker, "The Euro: The View from America," Europe, September 1997, p. ESR14. See also Larry Summers, "American Eyes on EMU," Financial Times, October 22, 1997, p. 14. Back.
Note 97: Bergsten, "The Dollar and the Euro," p. 84. Back.
Note 98: As quoted in Stokes, "Bank on It," p. 25. Back.
Note 100: David Currie, The Pros and Cons of EMU (London: Economist Intelligence Unit, 1997), p. 1. Back.
Note 101: C. Randall Henning, "Europe's Monetary Union and the United States," Foreign Policy, no. 102 (Spring 1996), p. 94. Henning notes that since the end of World War II, America has been historically less dependent on trade relative to Europe and therefore, less vulnerable to fluctuations in exchange rates than the countries of Europe. He writes, "When clashing with European governments over macroeconomic policies or the balance of payments, American officials often took advantage of this asymmetry. In several instances, the threat of a precipitous exchange-rate movement pressed European governments to reflate or dampen their economies in accordance with American preferences." Back.
Note 103: Philip H. Gordon, "Recasting the Atlantic Alliance," Survival, vol. 38, no. 1 (Spring 1996), p. 40. Back.
Note 104: Frost, Transatlantic Trade, p. 16. See also Ellen Frost, Prepared Statement before the House Ways and Means Committee, Subcommittee on Trade, Federal News Services, July 23, 1997. Electronic Version. She states, "In the case of Western Europe, the corrosive effect of U.S. unilateral economic sanctions goes well beyond business interests. Such sanctions violate transatlantic norms and expectations, thus undercutting the encouraging trend toward a widely accepted, rules-based, market-oriented trade and investment system." Back.
Note 106: Ibid., p. 19. See also International Institute for Strategic Studies, "U.S.-EU Trade Wars," Strategic Comments, vol. 2, no. 7 (August 1996), p. 1. Back.
Note 107: Suspension of Title III must be renewed every six months by the president. So far, three waivers have occurred, the last one on July 16, 1997. See U.S. Department of State, Special Press Briefing on the Helms-Burton Act, July 16, 1997. Electronic Version. Back.
Note 108: Robert Evans, "EU Asks WTO to Suspend Panel in Cuba Row with U.S.," Reuter European Business Report, April 21, 1997. Electronic Version. Back.
Note 109: "Europe, U.S. Seek to Compromise on Helms-Burton Act," EuroWatch, May 16, 1997. Electronic Version. Back.
Note 110: Ibid.; Robert Evans, "EU Asks WTO to Suspend Panel in Cuba Row with U.S.." Back.
Note 111: Anne Swardson, "U.S., EU Make Trade Strides, but Fail to Reach Settlement," Washington Post, October 16, 1997, p. A27. Back.
Note 112: "Phoney War," The Economist, October 18, 1997, p. 29. The Economist also reported that some negotiators had suggested a new December deadline to achieve a settlement between the United States and the EU on Helms-Burton --a prospect that is viewed as extremely unlikely. It noted, "The EU is willing to talk about common rules to discourage the use of expropriated property in the future, but only if the expropriation is demonstrated to have been unlawful. The Americans not only insist on including past expropriations; they also want to impose sanctions on the basis of claims of expropriation, not legal proof. As for extra-territorial legislation . . . the Europeans say it is contrary to WTO rules, the Americans insist it is lawful. It seems unlikely that either side will compromise enough to reach a deal on either point by December--or by any later deadline." Back.
Note 114: Guy de Jonquie'res, "Transatlantic Trade Peace at Risk," Financial Times, September 30, 1997, p. 7. Back.
Note 115: Michael Levyveld, "EU Extends Deadline in U.S. Sanctions Spat," Journal of Commerce, October 20, 1997, p. 3A. Back.
Note 116: The six measures from which the president must choose at least two to impose on companies determined to have violated ILSA are: import sanctions; denying credits from the U.S. Export-Import bank; refusing export licenses for controlled goods and technology; capping U.S. bank loans to offending companies at a maximum of $10 million per year; banning federal procurement of goods and services from offending entities; and prohibiting banks that finance such projects from being primary dealers in U.S. government bonds. See International Institute for Strategic Studies, "U.S.-EU Trade Wars," p. 1. Back.
Note 117: David Owens, "U.S. Condemns Total's $2bn Iran Deal: France Warns Washington against Retaliation," Financial Times, September 30, 1997, p. 1. Back.
Note 118: See Roger Cohen, "France Scoffs at U.S. Protest Over Iran Deal," New York Times, September 30, 1997, p. A1. Back.
Note 119: See Gerard Baker, Nancy Dunne, and Guy de Jonquie'res, "Avoiding Total War," Financial Times, October 3, 1997, p. 18. Back.
Note 120: Office of the Press Secretary, The White House, "Fact Sheet: The New Transatlantic Agenda." See also, Frost, Transatlantic Trade, pp. 70-71; and Joan E. Spero, under secretary of state for economic, business, and agricultural Affairs, "The New Transatlantic Agenda: Setting the Course for U.S. Cooperation with Europe," Dispatch, vol. 7, no. 23 (June 3, 1996), p. 283. Back.
Note 121: Frost, Transatlantic Trade, p. 71. Back.
Note 123: Stokes, "Introduction: A Transatlantic Vision," pp. 8-9. Back.
Note 124: Ernest H. Preeg, "Policy Forum: Transatlantic Free Trade," The Washington Quarterly, vol. 19, no. 2 (Spring 1996), p. 110. Back.
Note 125: Clyde Prestowitz, Prepared Statement before the House Committee on International Relations, Federal News Service, December 14, 1995. Electronic Version. Back.
Note 126: Peter Brimelow, "TAFTA?" Forbes, July 1, 1996, p. 52. Back.
Note 127: See Nathaniel C. Nash, "Showing Europe That U.S. Still Cares," New York Times, December 3, 1995, p. 20. Back.
Note 128: Frost, Transatlantic Trade, pp. 4, 66. Regarding excluding agriculture and other sectors from an eventual TAFTA, see Gary Hufbauer and Barbara Kotsehwar, "Policy Forum: Transatlantic Free Trade," The Washington Quarterly, vol. 19, no. 2 (Spring 1996), pp. 113-115; and Ernest H. Preeg, "Free Trade across the Atlantic," Journal of Commerce, November 15, 1997, p. 12A. Back.
Note 129: Schott, "Reflections on TAFTA," p. 39. Back.
Note 131: Ibid. Hufbauer and Kotsehwar also note that "encompassing half the world's economy, TAFTA would be viewed as an exclusive club--with membership requirements that are anti-Latin America, anti-Asia, and anti-Africa--and thus anti-WTO." See Hufbauer and Kotsehwar, "Policy Forum: Transatlantic Free Trade," p. 115. Back.
Note 132: Gordon, "Recasting the Atlantic Alliance," p. 45. Back.
Note 135: Frost, Transatlantic Trade, pp. 4, 73-75. Back.
Note 137: Ibid., pp. 78-79. Back.
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